Temu, an online marketplace that challenges rivals Shein and Amazon, is facing backlash from Chinese suppliers over its aggressive efforts to overhaul its business model.
The Chinese group, owned by $177 billion e-commerce giant PDD Holdings, has been looking to hire Amazon sellers who store goods in warehouses in the US and EU in recent weeks, according to suppliers contacted by Mr Tem, who told the Financial Times.
The move is seen as a way to protect the company's business in case the government closes tax loopholes that have fueled its growth, as well as to cut delivery times by storing goods closer to shoppers. The shift will allow the company to sell bulkier, higher-margin products such as furniture and appliances.
Temu, which launched in September 2022, attracted attention by replicating fast-fashion retailer Shein's business model of selling cheap, lightweight goods flown in from warehouses in China directly to Western shoppers.
The pivot to hire suppliers with overseas warehouses means Temu is moving from a “fully managed” model to a “semi-managed” one, in which sellers on the marketplace take on the costs of shipping, warehousing and last-mile delivery that were previously handled by online platforms.
Speaking to the Financial Times, several Chinese suppliers in the southern manufacturing hub of Guangzhou questioned the move, which would require them to take on more risk by selling on the platform.
“I feel like the way Tem is treating its suppliers is unsustainable,” said Hong, a leggings maker in the city of Haizhu. “I don't think it can last much longer.”
Another common complaint among suppliers is Tem's tactics of forcing merchants to slash prices.
Tem has found success by offering what it describes as an “easy” way for suppliers to get rid of unsold inventory – by sending goods to warehouses in China. “That's why it attracted so many merchants, including those with no experience in cross-border trading,” said Bin Gongsang, a merchant who sells electronic products on all the major e-commerce platforms.
One shop in Guangzhou said it received 30,000 to 50,000 orders a day when Tem first began operations, but now that number has dropped to 3,000. They believe the drop is because Tem is signing contracts with more suppliers, pitting them against each other to drive down prices.
Several other suppliers pointed out the unreliability of sales forecasts on Temu, where which sellers' products are most promoted to shoppers depends on which sellers are selling the cheapest items or have recently joined the platform.
Many shopkeepers say they have stopped doing business with the company due to an increasing number of fines issued by Tem for issues ranging from defective packaging to customer complaints about discrepancies between products and online descriptions.
“If there is a complaint from a customer, you will be fined even if it is not your fault. If one item in a lot is faulty, you will be fined for the entire lot,” said one dealer, who spoke on condition of anonymity.
Given its fast-growing sales, many retailers have said they're willing to work with Temu under a fully managed model. Bernstein analysts predict Temu will increase gross merchandise revenue, the total value of goods sold on the platform, to $54 billion this year, up from an estimated $17 billion in 2023.
But the company's pricing strategy makes it reluctant to move to a semi-managed model, the person added. “Even with all that cost, we would still end up not being able to sell the product when it gets to the U.S.,” Bing said.
To overcome this resistance, Temu promises to promote sellers who sign up for its semi-managed model by featuring their products in the top slots on the platform. “Temu prioritizes providing consumer traffic on its platform to sellers with inventory in the U.S.,” Hong said.
Hong added that Tem offers a subsidy of $3 per order to sell certain clothing items under its semi-managed system. Even with the incentives, Hong said the model is not favorable for small merchants. “Most of us sold through Tem because the company handled the logistics and warehousing costs for us, which many of us cannot afford,” he said.
Tem said: “The FT report is not representative of sellers' experiences on Tem. Feedback received from the vast majority of sellers reflects a positive experience, with many appreciating the increased exposure and sales opportunities our platform provides.”
The change in the company's business model comes as the United States and EU prepare to crack down on tax loopholes that exempt low-value packages from import tariffs.
The Financial Times reported this month that the European Commission is drawing up plans to scrap the 150 euro threshold for what items can be purchased duty-free, saying 2.3 billion items below that threshold were imported into the EU last year.
The United States has signaled it plans to change the “de minimis” rules that allow shipments worth less than $800 to arrive without paying import duties.
The move would also solve Tem's “fulfillment efficiency” problem, said Hu Jianlong, founder of Shenzhen consultancy Brands Factory. It typically takes Tem nine to 12 days to deliver packages from China to U.S. shoppers, while Amazon stores goods in warehouses outside major cities, allowing same-day or next-day delivery.
Some of Amazon's major Chinese suppliers have warehouses in the United States and other key markets, and they were willing to take on those costs because Amazon was seen as a “trusted” platform for making profits, the people said.
“Amazon is an important marketplace,” says Brand Factory's Hu. “Most successful sellers rely heavily on Amazon, which fosters deep trust in the platform. In contrast, emerging platforms have yet to gain the same level of trust.”
As Tem and Shane's challenges mounted, Amazon went on the defensive.
In recent months, the U.S. e-commerce company has cut the commission it charges clothing makers from 15% to 8%, suppliers say, while also cutting shipping and marketing costs for retailers. Amazon did not respond to requests for comment.
Amazon last month also began recruiting Chinese suppliers to copy Shein and Temu's model of shipping goods directly from China to Western countries in an effort to compete with the two companies by offering lower prices.
“Amazon was slow to act, but now all the platforms are copying each other,” said seller Bing. “There's a joke in the industry that they're all stealing from each other.”
